Volatility is back!
And as a seller of options I couldn’t be happier.
As most of you already know, the last two years have been difficult for those of us who sell options premium for a living. Not to say options sellers haven’t been profitable — quite the contrary — but the returns have been less than the norm.
Look no further than the chart of the VIX. The VIX, otherwise known as the “investor fear gauge,” plays a major role in the amount of options premium an options seller can bring in on a per-trade basis. Essentially, when selling options, the higher the VIX, the higher the return.
The reason: When investors become fearful of future market returns, they quickly become more than willing to pay more to protect their investments. As you can see from the chart above, we have seen two periods over the past 20 years where volatility hit all-time lows only to rally for the next five to seven years. So, it should be no surprise that I expect the same result this time around. We are already starting to see volatility return to normal levels and beyond.
This is why, in my opinion, I think we are entering a new bull market . . . a bull market in volatility. The question is, how can we take advantage of this new bull market in volatility?
The answer: Selling options, either through credit spreads, selling puts or simply covered calls. All of the aforementioned strategies will benefit greatly from the recent pop in volatility.
Face it, volatility is back, and while most investors are fearful and more importantly, losing money, options sellers are confident and making money.
Over the next several days I will discuss the different strategies I use in my Options Advantage and High Yield Trader services.
And if you would like even more ideas regarding options trading, don’t forget to sign up for my free weekly options report, The Strike Price. Or, check out my premium trading service, Options Advantage.